Wednesday, February 15, 2017

In Lend Lease (US) Construction LMB Inc. v. Zurich American Insurance Company, New York’s high court holds that the contractor’s tools exclusion barred coverage for a tower crane collapse caused by Superstorm Sandy under a builder’s risk policy. The crane was installed on a reinforce slab on the 20th floor of the building, and was to be removed from the site once the project was completed, though components of the crane were to remain part of the building after construction was completed. The crane tower was damaged when Superstorm Sandy made landfall, causing the boom to collapse in the high winds. At issue was whether the crane was covered by the policy in the first instance, and, if so, whether the contractor’s tools exclusion defeated coverage for the claim.

Whether the crane was covered in the first instance turned on whether the crane was a “temporary structure” within the meaning of the policy, and whether it was “incidental to the project.” The court concluded that the crane was a “structure”, and that it was “temporary”, in that it was to be removed upon completion of the work. The court also concluded that whether the crane was “incidental to the project” was “of no moment,” in that the purpose of the project was the construction of the building, not the crane. However, the court concluded there were issues of fact whether the crane was covered in the first instance, because a dispute about whether the crane was disclosed as part of the “total project value” created a triable issue of fact.

Notwithstanding, the court found that the crane damage was excluded by the contractor’s tools exclusion, which provided:

Th[e] Policy does not insure against loss or damage to … Contractor’s tools, machinery, plant and equipment including spare parts and accessories, whether owned, loaned, borrowed, hired or leased, and property of a similar nature not destined to become a permanent part of the INSURED PROJECT, unless specifically endorsed by the Policy.

In finding that the exclusion applied, the court concluded that the crane was “machinery” within the meaning of the exclusion, and that, although components of the crane were to remain a permanent part of the building, the components were reinforcements and ties; that the principal parts of the crane were not to become a part of the building. The court rejected arguments that the exclusion rendered the coverage illusory, reasoning that the exclusion did not defeat all coverage under the policy’s temporary works provision; coverage still would be available the cost of erecting scaffolding, for “temporary buildings”, and for “formwork, falsework, shoring, [and] fences,” which are not “tools” within the meaning of the exclusion.